Resources

A Government Scam

McWhortle Enterprises Inc. seems like the perfect investment for the post-Sept. 11 world: a solid company, praised by analysts and customers, selling a handheld biohazard detector guaranteed to beep and flash in the presence of anthrax or other deadly germs.

Only one problem: The company doesn't exist.

McWhortle Enterprises is a government hoax cloaked in respectability and planted on the Internet, waiting to deliver a lesson about the risks of online investing to unsuspecting consumers.

The Securities and Exchange Commission, the principal agency behind the fictitious company, said Wednesday it has seeded the Internet with three such Web sites laying in wait to say "gotcha" to naive investors.

"In a perfect world, everyone would read our educational brochures before they ran into a scam, but they don't," said SEC Chairman Harvey Pitt.

Officials from the SEC and the other agencies involved said they had no ethical problems with using a hoax to educate consumers.

"There's clearly no intent here to do anything but educate the public in a way that might actually catch people's attention and make them realize they were that close to being scammed," said Barbara Roper of the Consumer Federation of America. "You need to make the risk real to people."

On Friday, the SEC issued a fake news release on behalf of McWhortle, saying the company would go public Wednesday, with company President Thomas McWhortle III holding a news conference at SEC headquarters. The release was distributed mainly to Web sites by a service for financial news. Financial news agencies that received the fake release were warned.

The release touted the company's "Bio-Hazard Alert Detector," described as a battery-powered device that fits in a jacket pocket and beeps in the presence of all known biohazards.

After the release was sent, the McWhortle Web site received more than 150,000 visits in three days, the SEC said.

"The crooks figured this out a long time ago and it's about time we used the exact same tactics to fight back," he said.

The site, www.mcwhortle.com, has glowing testimonials from an analyst with a "major investment banking firm" and the chief financial officer of a "Fortune 100 Company." The Web site also includes an audio interview with the company president.

Those who continued clicking to invest their money got the punchline: "If you responded to an investment idea like this ... you could get scammed!"

The Web site notes that it was created by the SEC, the Federal Trade Commission, the North American Securities Administrators Association and the National Association of Securities Dealers to alert investors to potential online frauds.

Admitting to the hoax, the site says the agencies and groups created the site because of an increase in investment scams preying on fears of anthrax and other biohazards.

"This sie shows some of the telltale signs of online investment fraud," the site says. "Promises of fast and high profits, with little or no risk, are classic red flags of fraud."

To avoid scams, the SEC advises potential investors to do their own research to make sure a company exists, that its products are genuine and its claims legitimate.

In August, 23-year-old Californian Mark Jakob was sentenced to nearly four years in prison for issuing a phony press release to manipulate the price of stock in the high-tech firm Emulex Corp. The SEC had said Jakob's actions defrauded investors out of $110 million.

Since the recent anthrax-by-mail scare, the FTC has warned more than 100 Web site operators to stop making unproven claims about devices for bioterrorism protection and treatment, including dietary supplements, gas masks that may not work as advertised and ultraviolet lights falsely touted as anthrax killers.